Working Paper: NBER ID: w24035
Authors: Amitabh Chandra; Douglas O. Staiger
Abstract: In medicine, the reasons for variation in treatment rates across hospitals serving similar patients are not well understood. Some interpret this variation as unwarranted, and push standardization of care as a way of reducing allocative inefficiency. An alternative interpretation is that hospitals with greater expertise in a treatment use it more because of their comparative advantage, suggesting that standardization is misguided. A simple economic model provides an empirical framework to separate these explanations. Estimating this model with data for heart attack patients, we find evidence of substantial variation across hospitals in both allocative inefficiency and comparative advantage, with most hospitals overusing treatment in part because of incorrect beliefs about their comparative advantage. A stylized welfare-calculation suggests that eliminating allocative inefficiency would increase the total benefits from the treatment that we study by 44%.
Keywords: health care; allocative inefficiency; comparative advantage; treatment rates; heart attack
JEL Codes: I11; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| allocative inefficiency (D61) | variation in hospital treatment rates (I11) |
| overusing reperfusion therapy (E65) | harm to low-propensity patients (I12) |
| high risk-adjusted treatment rates (C22) | negative treatment effects (D62) |
| misperception of treatment effectiveness (D91) | allocative inefficiency (D61) |
| higher treatment rates (I18) | lower thresholds for treatment (C22) |
| eliminating allocative inefficiency (D61) | increase in treatment benefits (I12) |